It took Damac Properties Co. one day to sell the first 200 units in its Hollywood-themed apartment and hotel project as buyers seized the opportunity to invest in Dubai’s booming tourism market.

The closely held company, working with Viacom Inc.’s Paramount Pictures, plans to finance the $1 billion, four-tower development in part with proceeds from advance sales of serviced apartments. Buyers of serviced apartments, so-called because the hotel operator provides services including house cleaning, bed- making and Wi-Fi, can rent them out through a central reservation system, with annual yields that can exceed those from conventional apartment buildings.

“Rents can reach double what you’ll normally get on a long-term lease,” said Ronald Hinchey, United Arab Emirates director at Cluttons LLP, a property management and consulting firm. “It’s a very good investment, simply because hotel occupancy and rates are very high at the moment.”

The depth of demand for serviced apartments — and their viability as a financing source for developers at a time when construction loans are hard to get — will be tested as Damac and Emaar Properties PSJC, the country’s biggest developer, seek to sell at least 2,400 units over the coming months.

Until now, individual investors have been largely excluded from Dubai’s hospitality market, where the vast majority of rooms and serviced apartments are owned by private funds and hotel operators. An increase in tourism and shopping starting in 2010 is sparking a surge in accommodation and leisure projects.

Additional Rooms
It remains to be seen whether tourism will be strong enough to sustain the surge in Dubai’s hotel development. At least 11,200 rooms are expected to be added in Dubai by 2015 as hotels such as Sofitel Palm Jumeirah, Anantara Royal Amwaj and Oberoi Business Bay are completed, broker Jones Lang LaSalle Inc. said in a report last month. The sheikhdom is still recovering from a speculation-driven real estate crash that caused property values to fall more than 65 percent.

Damac purchased land and began work on the Damac Towers by Paramount project this year and plans to sell 1,000 apartments to fund construction. The company said it expects rental yields, annual income as a proportion of the purchase price and costs, to be at least 50 percent higher than conventional apartments. That’s 12 percent for luxury serviced apartments and 15 percent for those associated with a well-known hospitality or retail brand. Damac didn’t provide details about its second round of apartment sales, which began last month.

Biggest Mall
Emaar in September started selling properties in its first serviced-apartment tower since 2008. The Address The BLVD, linked to the world’s biggest mall, will include 542 serviced apartments and 200 hotel rooms. That building and other projects, including two towers connected by a roof terrace, will add about 1,400 serviced apartments to the existing 1,700 already built by the Dubai developer.

Dubai’s hotel and retail markets are recovering more quickly than office properties and homes as political turmoil in the Middle East steers visitors toward the U.A.E., one of the region’s most stable and accessible countries.

Hotel occupancy has averaged 88 percent this year, among the highest in the world, even as 500 rooms were added, according to Jones Lang. Revenue per available room, a measure of occupancy and rates, climbed 9 percent in the first quarter and average room rates rose 5 percent. The number of guests at Dubai hotels increased 9.5 percent last year to 9.96 million, with the majority coming from the Gulf states, India and Europe, according to data compiled by the Department of Tourism and Commerce Marketing.

Overbuilding Homes
Most individual investors in Dubai purchased residential properties for rental or resale, with thousands losing out when values plummeted as developers continued to build properties even as demand evaporated.

Private apartments produce rental yields of 6 percent to 9 percent, according to Craig Plumb, head of Middle East research for Jones Lang. A rental yield of 20 percent is achievable for serviced apartments, though only at the best-run places with large networks and strong brands, Hinchey said. Buyers also benefit when hotel operators pool the earnings of the privately owned apartments.

“So even if they don’t let your apartments, you’ll still get some revenue,” he said. “That isn’t a problem now because occupancy levels in some hotel apartments are in the high 90s.”

As a rule, buyers make a down payment of 10 percent of the total price, followed by several more payments during the building’s construction. They also pay maintenance fees as well as giving the operator a share of any profit they make from renting the apartment out.

High Returns
Emaar, which has sold serviced apartments in hotels around the Burj Khalifa, the world’s tallest tower, offers investors the opportunity to pool their rental properties. The grouped apartments are generating higher returns than other serviced residences in Downtown Dubai, the company said without being more specific. Serviced apartments leased for a year can generate rental income of as much as 8 percent, said Philip Wooller, Middle East and Africa director at hotel-research firm STR Global.

London is a leading market for serviced apartments, with properties offered in the Mandarin Oriental Hotel, the Shard skyscraper and the under-construction Four Seasons Hotel on Heron Plaza, broker Knight Frank LLP said in a report. “I can certainly see it spreading throughout emerging locations in Southeast Asia, South America and India,” Stephan Miles-Brown, Knight Frank’s head of residential development, said in the report.

Raising Money
Dubai’s developers are seeking individual buyers as bank lending for projects remains tight, even for hotel and retail properties. The companies are seeking alternatives including bond and share sales to finance projects.

The serviced apartments by Damac and Emaar mark a return of so-called off-plan sales, where advance payments on purchases help finance construction. While that provides developers with a way to fund projects, it also revives a practice that dried up after playing a central role in the Dubai property bubble that burst in 2008.

Banks in Dubai largely stopped financing off-plan property purchases after the market crashed, meaning investors will have to dip into their own resources to pay developers in installments as construction progresses, Ziad El Chaar, Damac’s managing director said in an interview. Buyers in the company’s hotel project paid 10 percent up front.

Saudi Visitors
Hotel apartments make up a minority of the hospitality market in Dubai, allowing room for growth even if overall tourism slows. The rooms are popular with Saudis, who made up the largest number of Dubai’s visitors last year.

Revenue generated by hotel apartments grew 21 percent to 2.8 billion dirhams ($762 million) last year from 2011 and supply grew by 9.8 percent to 23,069, according to DTCM. Traditional hotel rooms had a 17 percent revenue gain and an increase in supply of 6.5 percent to 57,345 rooms.

Hotel apartments in Dubai are generally alcohol free, an arrangement preferred by observant Muslim guests. At least 1.13 million people visited Dubai from Saudi Arabia last year, DTCM estimates.

“Dubai has an eclectic mix which is why it’s so strong,” said Wooller of STR Global. “Beach properties get the Russian, German and British demand, while downtown gets a lot of the Gulf, Chinese, Korean, Asia-Pacific market. Deira and Bur Dubai are more business and there you get a lot of Indian traffic into the cheaper hotels.”

Lower Rates
The property slump hit all of Dubai’s markets, including hotels. Room rates dropped at least 50 percent from 2008 before recovering by about 10 percent, Cluttons’ Hinchey said.

“Hospitality needed to become affordable to become successful, and before 2008 the room rates were too high,” he said. “Although the hospitality industry is doing well in terms of occupancy now, the room rates are well below what they were.”

As long as occupancy rates remain high, apartment hotels will provide property companies with financing for building even if other sources dry up, Wooller of STR Global said.

“You can barely buy a room in Dubai,” he said “As money becomes harder to find, hotel investment becomes a good way to develop a financial foundation for any development.”

The upscale tower, built by Al Shafar General Contracting (ASGC), features 132 apartments offering one, two- and three bedrooms. Each unit has a living room, a private balcony and a kitchen.

The property also features a 24-hour reception, all-day dining restaurant MnM, ‘Energize’ gym, rootop swimming pool, wireless internet in public areas and a mobile business centre.

ASGC president Emad Azmy said the project would cater to an increasing demand for luxury hotel apartments in the region.
“As expectations rise, convenient location, high-speed Internet connection, widescreen televisions, five-star service, the option to cook your meal, order room service or dine in a restaurant, full range of business and recreation facilities – all play a crucial role in choosing a hotel,” said Azmy.

“The Abidos brand has been conceptualised to provide quality lifestyle at affordable rates,” he added.“Owing to the ever-increasing demand, Dubai continues to be a wide-open market for hotel developers. There are clear opportunities available and we are keen to take advantage of this lucrative sector.”
.
The property is located close the Dubai Academic City in the residential area of Dubailand, one of the Gulf emirate’s most ambitious mixed-use developments, announced at the height of the real estate bubble.

Emaar (EMAAR) Properties PJSC, the United Arab Emirates’ biggest publicly traded developer, plans to build a hotel in Dubai near Burj Khalifa, the world’s tallest tower, to capitalize on the city’s hospitality boom.
The hotel, which will be managed by Emaar’s Address chain, will include 200 rooms and 542 serviced apartments, Arif Amiri the company’s retail chief executive officer, told a press conference today.
“Our hotel occupancy in the area is around 90 percent all year long, which shows the strong demand for hospitality in Dubai,” Amiri said. “There is strong interest from investors in the Gulf, Russia, China and the Middle East.”
Hotels and malls are becoming the main source of earnings for Emaar as tourist arrivals to Dubai rose 10 percent to 9.3 million in 2011, according to tourism department data. The company derived 41 percent of its revenue from hotels and malls this year, compared with 24 percent in 2011. As Dubai’s airport passenger traffic rises, the company’s hotels and malls are benefiting from increased demand.
Initial financing for the project, which will be mainly raised by sales of serviced apartments before construction starts, has been “secured,” Amiri said. He declined to comment on the value of the project or the sale prices of the apartments. The sale of the project will start on Sept. 22.
The five-star hotel is Emaar’s sixth Address property in Dubai and will have 63-storys, with studios to three-bedroom apartments. Construction is expected to start soon and completion is set for early-to-mid 2015, he said. A contractor is yet to be appointed.
Dubai’s airport traffic rose 14 percent to a record 27.9 million in the first six months of 2012, the operator said in July. Economic growth, which relies on hospitality and trade for more than 33 percent of gross domestic product, is forecast to expand as much as 5 percent this year, according to the government.

Dubai’s tourism industry achieved a 20 per cent jump in revenues to Dh16 billion last year due to a number of factors, including Arab Spring and the addition of new properties.
The emirate’s 575 hotels and serviced apartments catered to 9.30 million tourists last year, a growth of 10 per cent over the 8.49 million in 2010.
Of these, 7.26 million guests stayed in hotels, up from 6.56 million in 2010.
This reflects an increase in room rates as hotel occupancy stabilised at 74 per cent, said a latest report by the Department of Tourism and Commerce Marketing (DTCM), the tourism regulatory body.

Dubai’s tourism infrastructure coupled with the Arab Spring helped divert tourists traffic to Dubai.
“We have seen a 30 per cent increase in hotel rates in recent months,” Muin Serhan, general manager of the Millennium Plaza Hotel, told Gulf News.
“Of course, the Arab Spring has helped tourists to come to Dubai, and its world-class infrastructure has also helped attract visitors from the region.”
Guest nights rose 23 per cent to 32.84 million in 2011. Hotels contributed 23.26 million guest nights.
Hotel apartments experienced an increase of over two million guests, with these properties contributing 9.5 million guest nights last year against 7.5 million in 2010.
Similarly, the average length of stay stood at 3.6 days, up by 12 per cent over the previous year.
Gassan Aridi, chief executive of Alpha Tours, said, in addition to the Arab Spring, the long-term reputation of Dubai helped.
“There is a combination of factors for this growth. Dubai has a strong reputation as a leading tourism destination — that helped along with the Arab Spring,” he said.
“Besides, new tourism products and hotels have helped attract visitors, such as the Burj Khalifa and hotels in that neighbourhood.
He said room rates will stabilise. “There are a number of new hotels coming on line this year which will increase supplies.”
One of the key reasons for growth is the expansion of Emirates airline, which is the biggest supplier of hotel guests.
Emirates carries more than 34 million passengers a year, a significant number of whom stay in the hotels.
Initiatives
However, DTCM Director General Khalid Al Bin Sulayem said: “We have been successful in boosting the number of tourists to Dubai due to our initiatives to enhance our position in established markets and tap new and emerging tourism source markets.
“The substantial gains by hotels and hotel apartments reflect, once again, the vibrancy and dynamism of the tourism industry in the emirate.”
In 2011, Saudi Arabia emerged as the top source market for Dubai’s tourism industry with 873,152 guests, followed by India with 702,142, and British tourists with 643,196.
The number of tourists from Iran reached 476,708 and the US rose to 462,653.
Industry may face headwinds
Dubai: Despite attracting more tourists from the GCC and Asian countries last year, Dubai may expect some strong headwinds in the near future, analysts said.
“The year 2011 began with a marginal rebound in the GDP of developing economies with developed economies registering gradual growth. However, towards the end of the year, most developing economies in Asia including India and China reported a decline in GDP growth and lower GDP outlook for the year ahead. We may also expect sluggish growth in US and Europe due to various economic issues that need attention in 2012,” Sheetal Kothari, Research Analyst, Business and Financial Services Practice, Frost & Sullivan, told Gulf News.
“These circumstances of the global economy would exert a downward pressure on oil prices. On the other hand, increasing unrest due to the Iran-US standoff has the potential to push oil prices upward. The interplay of these factors increases the uncertainty in the outlook for oil prices. The outlook for UAE tourism is uncertain.”

Millennium & Copthorne, one of the world’s largest owned-and-managed hotel companies with more than 120 hotels across 20 countries, has revealed it will be making its first mark on the deluxe serviced apartments sector when it opens a modern and stylish property in the popular Dubai Marina area in the coming six months.

Once open, this Marina Promenade property will boast 151 spacious and contemporary serviced apartments, comprising 91 one-bedroom, 36 two-bedroom, 13 three-bedroom units, two penthouse apartments and eight villas. The serviced apartments cater to professionals and families attracted to a range of nearby shopping, dining and entertainment venues. With a spa, health club and two swimming pools for guests, the serviced apartments are expected to appeal to both long term residents and short term leisure and business travelers. The project, currently under development by owner ARJ Properties, is expected to enter its soft opening phase in Q2, 2012.

Ali Hamad Lakhraim Alzaabi, President and CEO of Millennium & Copthorne Middle East and Africa, commented: “We are delighted to bring one of our brands to this desirable area of Dubai. The entire development is of the high quality standard our guests expect from a Millennium & Copthorne property and it is the perfect vehicle for our first foray into the serviced apartments arena in the region. Bringing together excellence in service, value and location, we foresee a good level of demand from the start.”

Maa’n Nassereddine, Executive Director, ARJ Properties, said: “Millennium & Copthorne is well known for its experience and expertise in the hospitality sector, delivering returns for its owners without compromising on its trademark quality for guests. We look forward to a long and fruitful partnership with its dedicated team.”